Eurozone economy to 'shrink by 1.9 per cent'

EU economy and monetary affairs commissioner Joaquín Almunia has warned that the eurozone economy will shrink 1.9 per cent this year and grow by only 0.4 per cent in 2010.

The Spanish official said on Monday that the whole EU was facing a "deep and protracted recession".

Unemployment in the 16 countries using the euro is expected to exceed 10 per cent in 2010, up from 7.5 per cent in 2008, according to the commission forecast.

The commission hopes it will be possible "to create the conditions for a gradual recovery in the second part of 2009" in the eurozone economy.

Almunia said in a statement it would be achieved through "measures to stabilise the financial markets, the easing of monetary policy and the economic recovery plans".

The commission said annual inflation in the 16 countries using the euro would be one per cent in 2009 and 1.8 per cent a year later.

Reaction to the commission statement was swift - with UK Tory MEP Timothy Kirkhope focusing on the executive's warning about Britain's soaring levels of debt.

The commission's interim economic forecasts predict the UK economy will contract by 2.8 per cent in 2009 - one percent above the EU average - and grow just 0.2 per cent in 2010. In their forecasts of last November, the commission predicted a one per cent contraction in the UK this year.

The commission has also warned that UK government debt will rise to nearly 72 per cent of GDP in 2010/2011.

Kirkhope, Tory leader in parliament, said, "We are beginning to see how Labour's policies are making the recession deeper and Britain's recovery tougher.

"The entire EU is suffering from the financial downturn, but Gordon Brown's debt has made the situation all the more acute in Britain.

"These forecasts blow the treasury's predictions out of the water, and will make Britain's debt crisis even more acute than already envisaged.
"Britain is at risk of becoming the sick man of Europe again."

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